Q2 2020 Suncor Energy Inc Earnings Call
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Ladies and gentlemen, thank you for spending by moving to the Suncor Energy second quarter 2020 financial results Conference call.
At this time, all participants' lines are in listen only mode. After the speakers presentation. There will be a question and answer session to ask a question. During this session meet the press star one of your telephone.
Regarding further assistance please press star zero.
I'd now like to end the conference over to your Speaker today, Trevor Bell Vice President of Investor Relations thinking. Please go ahead Sir.
Thank you operator, and good morning, welcome to Suncor second quarter earnings call with me. This morning are marked little President Chief Executive Officer, and Alister Cowan Chief Financial Officer. Please note that today's comments contain forward looking information actual results may differ materially from expected results because of various risk factors in.
Functions that are described in our second quarter's earnings release as well as our current annual information form and both of those are available on SEDAR and guar and our website Suncor Dot com.
Financial measures referred to in these comments are not prescribed by Canadian gap for a description of these financial measures. Please see our second quarter earnings release following formal remarks, we'll open up the call. The questions now I'll hand, it over the market for his comments.
Good morning, everybody and thanks for joining us during our first quarter earnings call. In early May we knew that the second quarter would be particularly challenging certainly the most challenging and our modern history and as drastic measures to minimize the impact of global co, but pandemic were implemented.
And in line with our expectations. The second Mart quarter was marked by the unprecedented scale in severity of market volatility that affect that both upstream and downstream.
In our markets gasoline diesel and jet fuel demand declined by approximately 50%, 25% and over 80% respectively. During a four week period between mid March and mid April.
T I futures trade at across an 80 dollar us per barrel range from negative to positive $40 us a barrel.
And suite differentials move nearly $20 a barrel within the span of a month from plus $2 in April to minus $15 in may returning to par in June but.
But through this we have focused on positioning the company for a long term success and by remaining agile, taking decisive action and capturing value through our integrated model.
On our Q1 call we outlined a number of measures taken in response to the unprecedented market environments, including a 33% or 1.9 billion dollar reduction in capital spend.
$1 billion or 10% reduction in operating costs, and a 55% reduction in our dividends.
And through the second quarter other actions were taken to adapt to the rapidly evolving market conditions generating positive funds flow for the quarter.
We continue to enhance cobot 19 safety measures and ensure that health and protection of our employees customers and communities.
We maintain flexibility in our maintenance schedules, while protecting the health and safety of our employees.
We adjusted the utilization of our refineries, while flexing the product mix for enhanced margin.
Recaptured value by providing.
Provided by our integrated model, especially within our midstream assets and we maximize physical integration by ensuring our upstream production pace demand avoiding unnecessary inventory builds.
The value realize from these activities reinforces once again that our physical integrated model is greater than the some of our parts.
Alister will provide more details in a minute, but I first wanted to recognize and thank all of our employees.
They did an amazing job very difficult circumstances them at certainly demonstrated how agile and decisive we can be one responding to extreme extremely volatile markets.
Starting with actions taken in the upstream we captured better than the industry average realized pricing across our products brought to market and.
In a quarter were FCO differentials were highly volatile as I previously mentioned, we successfully captured the full value of index pricing.
Im bitumen sales, we realized approximately 35% higher pricing than the hardisty benchmark due to our marketing and logistics expertise.
For all of our assets in the Oilsands region, including Syncrude, we swiftly lowered our capex to $422 million in the quarter, which was less than half of what we caught the capital that we spent in the first quarter.
We safely executed our planned maintenance activities and continued cash flow improvements projects, such as the Syncrude interconnecting pipeline and the Fort Hills autonomous trucks deployment.
In the downstream, we achieved 76% utilization above our previously guided second quarter range expectations.
This utilization was made possible by having real time access to consumers, allowing us to rapidly.
Adjust to evolving market conditions.
Our retail and wholesale channels were able to secure customers for our refined products, allowing our refineries to pace ahead of industry average utilization.
We also flagstar refineries to meet diesel demand early in the part of it in the first part of the quarter and as consumer demand increased in the latter part of the quarter, we shifted to increase gasoline production.
Our Canadian refineries averaged 80% utilization in the second quarter, which was more than 15% above the Canadian industry average.
This advantage combined with our sophisticated marketing and logistics capabilities, and our retail and wholesale consumer channels equips that downstream portion of our business to lead the overall recovery of our funds flow in the second half of the year and into 2021.
As we exited the second quarter refineries were operating at an overall utilization rate of approximately 85%.
We connect the upstream and downstream business units.
With our trading and marketing expertise and widespread logistics assets, we placed Maxim equity volumes through our refineries and carefully managed inventory levels to take advantage of the price volatility during the quarter.
Since 2017, we've been strengthening the capabilities of our trading in marketing organization investing in technology infrastructure and expertise, we continue to make investments advancing initiatives to significantly improve our ability to manage our products.
The current environment highlights the strategic importance of these investments through strong realized pricing in our upstream increased equity feedstock into our refineries and optimization of our production and inventory levels.
I would also like to mention that just last week, we continued to build on 26 years of sustainability reporting.
Basing our 2019 annual report on sustainability and our fourth climate report. This track record continue to highlight our longstanding commitment to transparency disclosure and progress on the SG.
Ill now pass it off to Alister to go through our quarterly financial highlights.
Thanks Mark.
Mark highlighted the unprecedented studio volatility across the business. This quarter was like none other than some color.
It was impacted by both the demand comes online.
Then patil speed than school.
This quarter, the resilience of human degree Remodels and with that.
Despite the 500, Unfortunately, though are negative.
Back to one and three in Fytwo losses in the quarter due to the rothman moved between crude.
We're still able to generate approximately 500 million of funds move for multiple reasons.
Related to two remarks demise price realization.
Approximately 80% of the companies don't run it really towards late you could.
As we reported 5% refinery foods don't.
Physically integrated results through production.
Refined product mix, we did 40% definitely afforded to person diesel.
As Mark said this mix MUFJ significant movement over the course with the top two months.
Consumer demand should.
The end of March three units to 1 billion dollar reduction through or operating costs from 20 to 22 group, it's going to 19 and during the quarter remitted progress towards achieving target within us delusional Butte hundred $11 million lower than Q1, this year and 643 million goals Northern Q2 loss.
We remain confident and moves illustrative or.
Equal to deliver the 1 billion goes and while food cost through these 220 relative to 29.
And the capital so you spend $671 million through Q2.
600, min 100 million or 50%.
Q1.
Our year to date capital spend to 1.9 billion businesses as well to do a little bit of capital plan in the 3.6 before building goal reads and that will be 1.9 billion dollar reduction from original 2020 pay.
Within this reduced capital guidance, we continues to make economic capital investment.
The fruits and feel good business.
His future operating and sustaining cole capital call can drive thru tubing goals of incremental.
For you from school that target like 2200 volume.
Just wanted we originally.
Approximately 100 million over two to two capital spend or 15% was invested in these initiatives.
Well on track through to 1 billion of those costs will target bye bye.
By 22, new Threed and the fuel two buildings all sites when you're going to fall.
These initiatives before increasing shareholder returns in the future.
Last month.
2 billion go through funds will benefit is newbuilds assumption will cost and productivity changes in their business and were largely independent of commodity price.
We remain committed to returning value to shareholders, while maintaining our financial strength.
During the second quarter, you turned over $300 million shareholder.
Ended the quarter.
The debt to total comp ratio of a group added 7.5% was there just wanted to emphasize includes all or leases.
The slightly differently to target ratio of 20% to 35%.
The significant reductions in cost capital spending on the dividend.
Most critical preservation O'connor limiting that increases and preserving the financial resiliency.
Well, we did build NAV of approximately 2 billion goals during the quarter not included a working capital build of approximately 1.3 billion a significant growth in the which is made up of when income tax cash receivable reduces the received by the end of mix.
On a current strip pricing, we don't expect any.
Any further debt for the remainder of the and with auto parts of our tomorrow to discuss.
2020.
Great. Thanks Alastair.
As I said on arc, our last call. Our view is that recovery will be led by the downstream as product demand improves and refinery margins strengthened which we fully understand differs from the general view of refining outside of Canada and based on our second quarter operating financial results and the.
Once market dynamics that we're currently observing we maintain this view.
During the second half of 2020, we see continued strengthening of downstream demanding gasoline and diesel to more seasonal levels by the end of the year.
And given the high level of global crude inventories and the return of production, which was shut in during the second quarter, we expect upstream pricing and crude spread volatility to remain through 2020, although obviously not as extreme as we saw in the second quarter.
We'll continue to pace upstream production with overall downstream demands to manage our crude inventories.
The pace of demand recovery will be influenced by a number of factors, including the timing and pace and restart of the North American and global economies.
And secondly, the impacts of any government stimulus such as infrastructure spending or other fiscal stimulus and third the potential for a second wave of cobot 19, and any medical advancements in the area of testing tracing treatments of our vaccines for cobot 19.
In other words uncertainty remains very high.
And we will take the necessary actions within our model to generate additional value, including evaluating with our partners the option to resume a to train operation at Fort Hills.
We generate free funds flow in excess of our capital and dividend commitments will look to bring our total debt to capitalization back into the top end of our range.
Once were at or below our 35% we will continue to follow our capital allocation framework with a combination of future debt repayments, increasing shareholder returns and making measured investments and economic projects.
Going forward, there's a fine balance between supply and demand.
Production shut ins and restarts across the globe against the backdrop of starting and stopping and restarting economies.
This situation will continue to evolve and highlights the importance of our cash breakeven to cover sustaining capital and give it ends which we reset in Q1 to $35 you SWT Guy.
This ensures our ability to maintain the financial health and deliver strong cash flow through these continued volatile times said another way, we won't bet the financial health of our company on the pace of recovery, which is outside of our control.
Although volatility continues we wrap up this quarter well positioned across the business Theres no doubt that the pandemic as an evolving situation, but we will continue to remain agile and the execution of our strategy leveraging the flexibility and strength of our unique business model assets and expertise.
Yes.
Our company strategy remains unchanged and in fact, these circumstances have reinforced that our focus on safety operational excellence financial strength.
Disciplined capital allocation shareholder returns and leadership in the SG is the path to create long term value for the company and our shareholders and with that I'll turn it back to Trevor.
Thank you Mark and Alister I'll turn the call back to the operator to take some questions. So.
Thank you.
And ladies and gentlemen, as a reminder to ask a question lead to per store, one and telecom.
Joe Your question. Please press the pound key please stand by the company to win a roster.
And our first question comes from Alon Manav Gupta with credit Suisse for loan is now open.
Oh, Thank you for taking my question.
Simple question.
Updating and you'll see his extensive activity then from 2.96 billion to 2.156 million in a single quarter. That's quite an achievement Im just trying to understand can you help us quantified the buckets. How you achieved such quick cost reductions and look how much of this is Elizabeth TQ. Thank you.
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Frank foot of.
Also here.
The significant reduction in one quarter I think really if you look out of refocus our on.
Helping work there wasn't Lucerne show.
Surplus positions that we've been used.
Positions corn prices across the organization.
As you know we show the.
The maintenance and some of those costs will likely come in and the effect of a third quarter, but not all those are the key bucket. So what we were able to achieve but on the call thing.
And second quick follow up is tough to think about that that should achieve what they seem that if oneq spaces. If he has utilization dropped 20% U.S. only gulps, 40% looking to achieve less than in lots of the utilization dropped Clinton listening, but the opening since like it's on two of them all patients and.
About who plentiful almost 600, if you take into account the people in that so it's a liquid highlight how you would it let's see if it is also an uptrend.
Okay.
Manav, it's mark.
So if I if I caught all that.
You know a lot of this is just leveraging 100% of the expertise to the integrated modeled and making sure that were maximizing the value in such a volatile market, where we talked about the spreads in the tax changing so much and shifting from gasoline to diesel 100% of our focus was.
Constantly pivoting to where the value wise and the value shifted in many different dimensions through the entire quarters. So it's not just.
On average with the wave at the market changed every single month every single week.
Bank.
Q.
And our next question comes from the line of Neil Mehta with Goldman Sachs. Your line is now open.
Great can you hear me okay.
Mark.
Thanks.
Operator can you hear us.
Yes, we can all are you now.
Okay does anybody on the line so we can get to questions.
Yes.
If you didn't get a chance to ask your question. Please.
Star one in re connect.
Our next question comes from the line of Phil Gresh with JP Morgan. Your line is now open.
Hey, Good morning can you hear me all right.
Yes, we can sell.
Great.
[laughter].
[laughter].
Good morning.
I guess the for selection.
The I had would be for Alister you made a comment about.
Not adding any additional debt in the second half and and Mark you talked about $35 reiterated $35 breakeven. So I assume it's a bit of a nuance question, but it seems like you guys actually be generating positive free cash flow Nexus as a dividend actually showing some of the leveraging the back half given your commentary on refining.
It seems.
Reasonably positive so any additional color you could provide on that.
Well I'll fall I think originally when we review assuming your prices are going to view the second half of the year on an annual to many of you there are markets.
Price forecast for the second opportunity to anything else diluted assuming.
Very consistent with a fairly environmental and leverage our level of is higher.
And maybe just to add to that sell part of the issue with that as uncertainties high you've seen it and all sorts of across North America economies, starting and stopping restarting so I.
I think the jury's still out and there's a lot of things that have to get resolved before we get back to what we thought was normal and so.
Our whole focus is to maintain flexibility and as I stated.
Let's see it before we start trying to figure out what we're going to do with the additional cash.
No I understood.
Just going on at the strip comments.
You had made.
The second question would be just on capital spending.
I think most people are kind of wondering.
Where where their companies are headed as we look out to 2021 relative to 2021.
Whether you would continue to keep spending at current levels or where a few via the need for any particular reason for for spending would go higher and.
Just given where we've seen so far is there any view around sustaining capital needs of those changed at all based on what's happened over these past few months.
Well, what we've said about sustaining capital as we expected to be between 2.75 and $3.75 billion. Each year were below that this year because we've we've shut in some of the projects that we would consider to be sustaining capital in time.
Our focus was to maintain financial strength of the balance sheet through this period of time and and so assuming that the price was $35 next year, you would expect that our focus would be continuing to keep the company in the same situation around capital and operating cost and such now.
That might sound very conservative I think we'll find out in towards the fourth quarter, but our specific views on 2021 will be published with our guidance that will send out in December as per our normal process.
Okay.
Last question just on the working capital elsewhere, you mentioned the tax elements.
Just any further color you can provide on the rest of the working capital headwinds in the quarter is there any chance in the second happy as the year that any of that would reverse or is that more of a one time.
Impact specifically to two kids thanks.
A lot of a most of the rest is related to.
Morning.
Okay fair it will reduce a reflection of the significant reduction in operating cost and capital where we have in the quarter. So.
To extend.
At some point in the future.
We will begin to increase that of those you'll see a reversal, but I wouldn't expect reverse for the rest of the next year.
Got it okay. Thank you very much.
Thank you and our next question comes from the line of Neil Mehta with Goldman Sachs. Your line is now.
Hi seem to hear me okay.
Yes, we can deal with welcome back.
Thank you sorry serve as a refresh.
I guess the first question for you is just around 1 billion dollar target you had made some comments in the release about it but just how do you think about the glide path to keep their to 2 billion dollar triggers it today.
Hello target, a chief ability at that what's in the bag.
And what are the milestones we should be watching.
Yes, Thanks, Neyland formal guidance for the technical issues. We had this morning, I guess, having an agile Q2 call fits with an agile quarter back.
Well $1 billion. So our focus right now it's been narrowed to deliver the $1 billion by 2023.
Projects that are making up that it had autonomy is haul trucks system, which we expect to have fully deployed at Fort Hills. This year ahead of schedule and then we'll go back to base plan.
We're still working on the Syncrude Suncor pipeline interconnect, which were anticipating to commission before the end of this year. We're doing continued investment in our supply and trading as an example, or where we're still working on our enterprise wide processes, which were expecting to have in place rate at the end of next year. So these are there.
Things that are driving our 1 billion dollar cash flow improvement by the time to get to 2023, our confidence in that is very high all of these.
Items are underway now and that several of them are well advanced.
As you know we took some decisive action to slow down and defer that cogen and the wind farm and then some of our other digital.
Programs, which is why the second billion dollar got pushed out to 2025, where these are great projects, we've talked about the cogen at length for great returns.
Very positive and driving down greenhouse gas emissions by two and a half mega trends and such so theres a lot of great attributes to that obviously, it's a high priority for us we just need the financial.
Market conditions to improve before we restart that project, we certainly don't want to restart it and then have to stop it again, so thats now scheduled for 2025, and our confidence again as as very high.
Yes, that's great as a follow up is just so much in the news around pipeline.
There has been for last couple of years. It feels like it's been particularly acute in 2020, let's just step back and talk about some of the individual projects in your perspective on them and the couple of come to mind right. So one is is where we stand with line size.
At the Dakota access and what it could mean for personal to light crude your system and then the long longer term long haul pipelines, whether that's trans mountain or Keystone Sir.
There's a lot there, but if you can pack 'cause it individual projects and how you get comfort around congrats.
Thanks, Neil I think you covered off the waterfront on pipelines there so.
Let me touch base on it.
Line side, we think as a low probability bands of that line getting shot and.
We really think that theres, some really good work going on around how to manage that and an improved the path forward. It and this is something that's critical to.
Haul central Canada in Michigan markets, and so to the extent think thats threat that shutdown, it's a real threat to the consumers that are relying on those products to be able to keep their economies go in and moving forward. So.
And so our view is we think it's being well manage we think it's a low probability event, but we do have contingency plans in place and that we have the ability to be able to move crude into Montreal and use the dock there for waterborne crudes coming up a Saint Lawrence and we also have the Portland.
Main pipeline that allows us to bring crudes into eastern Canada, as well remember that when lying nine went the other way the entire central Canadian market was essentially provided by waterborne crudes. So we have some flexibility there, which we think as a great contingency so and then.
When you get on to doubtful, we don't move any crude on the Apple we do end up using some of the Bakken and light crudes into our eastern Canadian refineries and we don't see this is having a significant impact on Canadian differentials. We think it's more of a regional issue and that there is adequate.
Assays, so it's basically a head to those producers in the Bakken and then on the other three lines Trans Mountain, Yes. Its credit its final court case, we think it's in good shape there constructions moving forward.
They're talking about it being on late 2022.
If it's 22 our into 23.
I would to mid 23.
In good shape.
Line stream, where.
Optimistic about the areas that process going on with the Minnesota Public Utilities Commission to re approve that route and such associated with that and we're expecting a decision in late 2020, So we're expecting that line to show up and.
Say mid 21.
Or or towards the end of 21, but we still think that happens so and then Keystone XL I don't know seems like it's becoming a significant part of the the discussion on the politics side and so now they're working through these latest court rulings. So it's delayed any of the construction of.
Cross the waterways, but I think if you go in fact, the TC there Theres still plowing ahead, and and working hard to make this thing happened. So theres lots of resolve their to keep going so we're still optimistic about the lines, but you're absolutely right theres been theres been more activity on the pipelines for a long time.
That said Trans mountain is looking better than us.
Ever has.
Thanks Mark.
Thank you and then next question comes from the line of Greg A party with RBC capital markets. Your line is now open.
Yes. Thanks, Thanks, good morning.
Couple of questions free maybe maybe just to start it.
At Fort Hills. So you you go into one and a half to one trains, but I guess with peaking my interest there a little bit is just with the progress that you've made with the opponents haul trucks.
What's the game plan at Fort Hills is that is it to move.
Back to one towards the ended the year or do you think you probably remain running that at one train.
Yes, great question, Greg Thanks for that.
Our focus on Fort Hills is like with all of our assets is to maximize value.
Clearly in the second quarter when prices were so low we decided to park one in train because we come to efficiently use that.
And so when you look at it there's three things we're trying to accomplish at Fort Hills first of all we're trying to make sure that if we bring it on we think that its we are going to have us relatively stable price environment. So that this thing will be able to perform and generate good cash flow. The second thing is as Kirk.
Element is a bit of an issue because as you know what the second training. If we started up we can't run it at full utilization. So that's a bit of a challenge and then the third one which is where we're putting on an enormous amount of our attention is to restructure that cost structure that business. When we originally started it up we overstaff that with the expectation.
We started up get into full rates and then maintain at for a year and then lean outdoor organization, we haven't been able to do that because it curtailments and now we're in the process of doing that without having run it for a significant period of time. So we're doing that so when we park that we thought we would have it down.
Add potentially to the end of 21.
Price environment now would what incentives to bring it back on this is a debate thats going on with the owner. So no decisions have been made and it requires that the alignment of the owners to be able to move forward on it.
But with that said at some point here, we're going to have to go into a substantial cost around winterizing net if we're not going to radnet. So I I think theres, a reasonable chance, but it will be back online by the end of the year, but again no decisions have been made and this is what we continue to work with the owners.
Okay. That's that's a really thorough answer.
And I know just announced his question it at the beginning just on the downstream, but maybe to to be a bit more specific.
In terms of the performance and it did it certainly surprised us just given on the headwinds, but it did retail or.
Marketing logistics player.
They've rolled Eric I can see a big smile and Mark families space Dizzy probably took advantage of all kinds of things in terms of the volatility referring to.
I know in the first quarter you guys I think it talked about the value.
I want from supply and logistics was that was that a big driver here.
Yes, Greg I would say this is a huge driver as we've emphasized suit us being able to see exactly what's happening at the retail consumer and at the wholesale level and and being able to pivot to make sure that we're managing our inventories and yet providing the product to the end consumers.
As has been a huge strength and that goes all the way through our crude logistics and such that.
Our tally shop managers and such and so we're very happy this is where the the strength of our supply and trading in the marketing organization really shines and then the agility of both the upstream and downstream to be able to keep adjusting the operations to chase the value and so.
I think the whole focus on agility, but the logistics piece of that in supply and trading has been a huge part of it to be able to constantly optimize between the upstream in the downstream I just ours at a very Greg.
From a cost perspective no.
Good cost reduction across the business, including returns we've also help them in the quarter as well.
Okay. Okay. Thanks, very much guys.
Thanks, Greg.
Thank you.
And our next question comes from the line of assisting with Bank of America. Your line is now open.
Thanks, Good morning, everyone Mark.
Appreciate all the details on pipeline use and just wanted to dig a little deeper the second lot Lear is crude spreads.
WCS spreads have been well behaved just wondering if you could share.
Kind of your outlook on spreads over the next 12 to 18 months given all the volatility just.
Pipes versus under under utilized pipes currently where says you know whether you see crude by rail resurgence at some point, which what's your outlook here.
Okay.
Yes, you can see as Canadian crudes coming back on and you can see that in and you'll hear it. So over the next 10 days, there's lots of Canadian crudes coming back on so we're starting to see the pipeline spell up again, and I would expect that thankfully our inventory positions in western Canada in pretty good shape, but.
You look at the forward forecast on WCS, you'll see spreads coming out as we head towards the they ended the year here. So we're fully expecting that several operators will start re initiating their railbike crude by rail associated with that we've seen rail movements now are kind of getting.
Down to the low lowest fare with very little crude moving by rail, but we are expecting that to ramp up as we get towards.
The ended the year and that all assumes that we don't have another significant ur cobot outbreak and and Lotsmart lots of parts of our economy have to shut down again. So so we do expect bits to start getting back to where we were last winter maybe not to the same extreme.
And just because of our inventory positions and some crude being a little slower to come back but by the time you got to be ended the year. If we don't have this upset with a second cobot outbreak, we expect essentially all crude and in western Canada to be back online.
Great and just shifting to renewable investments Mark.
Yes.
Steady strategy any details on the Lanza jet equity investment and how does it fixed fit into the and Joakim investment that you made recently.
Well.
Lands that jazz is coming out of.
Out of the same company, that's lens attack and so but it specifically around bio jet fuel, but it also can make a hydro treated renewable diesel product. So we committed to.
Joining us in equity partner and build this.
Pilot, a commercial demonstration facility essentially in the United States. The good thing about it is that we will take possession of a bunch of that product. This hydrotreater renewable diesel and use that to manage our blending commitments and such that we have in Canada.
Lanzatech technology, where we're looking to see whether there's an opportunity around.
Using that in conjunction with potentially be entertainment technology, that's all getting work, whether whether that happens or not that hasn't been.
Fully sort it out, but we think that there could be a relationship between the two of them mens and Thats currently getting thought about.
Thank you.
Thank you and our next question comes from the line of Benny Wong with Morgan Stanley. Your line is now open.
Hey, good morning, guys. Thanks for taking my question just had a follow up on.
Prior question phenomena on Opex reduction.
We will fill impressed with the cost showing up in a meaningful in the quarter.
Just wanted to give some color and apologies if you already addressed this I might have missed it when the line Tuttle was how do you guys think about how much a structural and how much is potentially coming back in a more normal environment.
There is some areas, where you could potentially some upside there.
The second part of that question is little relations to the billion dollar free cash flow you guys are targeting targeting by 20.3.
How much of that $1 billion is embedded within there, especially the structural part or or is any of that incrementals to that billion dollar free cash flow by 2023.
Okay I'll figure out one.
I'll answer the second part of the question first is the number two on iron ore.
Cost reductions in the building girls and cost will be introducing to the know how much of the ability to go on welfare.
Reductions that were targeting issues.
Suitable pulls 2020 results about it being roughly 30, a burden is structural.
It is kind of one sorry, and then another third is probably structural or a couple of years.
Obviously beyond the we seek to make it long term, but thats kind of roughly the weather.
Got it thanks out there appreciate the detail on question. It was really second question is around your bitumen realization in the quarter.
Which was relatively strong relative to expectations and in a benchmark just hoping if you can provide some color in what drove that.
Can we expect this trend to continue going forward or is this more of an isolated that in the second quarter.
In taking batches of opportunities.
Yes, I mean, maybe I'll start and Alster can chime in on it.
It's interesting Benny that.
Some of this is just showing the agility of it is and it's kind of like what I was saying is we're constantly looking to figure out where where can we make money and this super volatile environment. So at points in time, where Benjamin prices were very low we tried to minimize the amount of pitchman, we are producing and then Maxim.
The value of our logistics associated with it and and then when it was strong Benjamin pricing, we sold more Benjamin and work to be able to maximize that so between the logistics and managing bad and being very agile and and leveraging that for the maximum extend awesome.
Well and and constantly shifting what products were sending the market.
Thats actually wind this comes out quite differently than the average did you want to add to that Alster Yaron through food shows a strong done ahead of.
Spencer midstream.
And your marketing expertise through girls the logistics of grew above it.
Over the last several years and being able directors different markets include I'm going to go coal.
It's a clear differentiator for us compared for any company selling only at harvesting.
Yes, we have more cost or you can see VR gaming volumes, you bothered by being able to be wants more on zone flexible there where we developed products.
Being a price taken at our existing.
Thanks for a detailed guys appreciate it.
Thanks.
Thank you and our next question comes from the line of Mike Dunn with Stifel First energy. Your line is now open.
Thank you.
Feldman with the Syncrude bidirectional pipeline soon to be Onstream here.
I don't believe view.
The past.
Okay.
Zach numbers on the margin or throughput improvements.
We expect Im just wondering if you can.
Some additional color there Im sure you must have run some numbers internally.
Looking at.
What the Syncrude and Suncor margins.
And then in years past has the system and then online. So just wondering if you can provide more color as we get pretty close to.
So I guess this long anticipated project getting done.
Yes, Mike Thanks for your question this.
So it's a complicated when I'd say the simple answer associated with it is when we put this investment in our calculations show that we could generate $200 million of incremental cash flow per year and some of that will show up in the syncrude investments some of that will show up in the oil Sands base.
Investment.
And so the and this is on an investment Thats a couple hundred million dollars.
And but it's it's difficult to answer your question because in some cases it allows additional crude when at Syncrude when they're doing maintenance on the upgrader. So that we can take it and use our logistics and our oil sands side, and our downstream logistics to be able to keep the crude growing.
And moving forward it could be like in some cases, it's moving sour product from our site into Syncrude. So that we could use idle hydrotreating capacity associated with it.
And the beauty of it as it provides the foundation and flexibility to be able to pivot to all of these types of examples that I'm, saying based on market conditions in real time.
Kind of like what you're seeing what the entire platform that alister just highlighted.
For us in the second quarter. So on specific details in some cases it can be additional production in some cases its margin improvement in some cases were taking product from one and moving into another so that the other site picks up another piece of the margin. So it's difficult to answer your question, but the simple thing is.
$200 million, a year and improved cash flow and we're confident that it will generate that cash that's part of our $1 billion by 2023.
Thanks, Mark that's helpful.
Can you provide any numbers around I guess.
Capacity to transport.
Sour crudes that Shimon.
And any other product that can move in between.
Okay.
I am Mike why don't we got all flame and Uh huh.
Okay.
Thanks, Theres no real driver on the team will give you recall.
Great. Thank you.
Thanks, Mike Thank you.
Thank you and your last question comes on line of Roger read with Wells Fargo. Your line is now open.
No. Thanks for sneaking in regards.
So you can hear Roger.
Right.
[laughter].
That asset growth and awareness calls earlier.
Yes, just one thing I'd like to clarify on the working capital and then the other question I'm going to have is on.
Thinking about spending on the capex side being underneath the sustainable level, yes that word continue into 2021, where should we think about that having the impacts I.
I guess from a volume side, great here would that be more yeah. He would we see that across the oil sands here just curious and then this mess by on the working capital Alister hears it sounds like very little recovery from this tax issue or anything else until or Q1 or two to next year is that.
Right way to think about it and their approach sort of the debt to capital improvements accordingly.
Yeah I'll onto the targets one.
Given the way the.
Thanks for clearing Canada, you don't bio until two do you want your your money back, though Q4 over next year.
Anyone.
Okay. Thanks.
And then mark.
Yes, part, yes, Roger on the volume impacts associated with sustaining capital.
Maybe the best way to say it is if it was $35 next year, we expect across the platform to look a lot like this year.
And so our production would be similar to what we have this year as well we fully recognize.
And I think people are seeing that is in the second quarter. The challenge you have is if you don't shot things down quickly you spend a bunch of money you can't get it back and so we kind of describe it as two feet on the breaks through this whole process thankfully, we're able to shut it down quickly we're now going back.
When evaluating okay do we like all things that were shut down and like take an example, like firebag. So its firebag, we shut down some of the sustaining pad investments.
Now, we're going in and kind of financing that and realizing okay, well, we probably should move some of these things forward. So.
Obviously right now if you just doubled our capital investment between now and the ended the year, we would still be within our range, but we had a very high corridor and a very low quarter that made up the first half of the year I think you'll see kind of more middle ground on our capital in the third and fourth quarter, and we aren't going to stay.
Some of this work and be able to move that forward next year. If we end up at $35 in a similar capital range, you will see a much higher percentage of that the sustaining capital and less on the economic side.
As we next year is a big turnaround year. So we have a lot going on as well so but right now we would say on on the volume side. You know next year is more likely to look a lot like this year and then some of it I will just depend on what we end up restarting for 22 and beyond so thats kind of where route.
Thanks for your question.
Thank you.
Thanks Roger.
Thank you.
And this does conclude today's question and answer session I would now like to turn the call back to Trevor Bell for any closing remarks.
Great.
Thank you everyone for attending to call. It do you have any follow up questions. Please email myself for the team man as we're obviously working.
A bunch of us remotely with the cobot situation and we'll get back to you today. So thanks again for joining.
Ladies and gentlemen. This concludes today's conference call. Thank you for participation you may now disconnect.
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